12 Jul 2022

Te Kaha Project Delivery Limited has advised Christchurch City Council that it has succeeded in negotiating a fixed price for the multi-use arena with its lead contractor BESIX Watpac.

Thursday’s Council meeting

“One of the major issues we had with the Design and Construction submission that we received from BESIX Watpac at the end of May was that they were unwilling to provide a fixed price for some of the materials needed for the project because of the volatility in the commodities market,’’ says Te Kaha Project Delivery Limited Chair Barry Bragg.

“We were concerned that would leave the Council and the ratepayers of Christchurch exposed to the risk of further cost escalations and that is not something we were willing to accept.

“The Board has been working through the risks with BESIX Watpac and they have now submitted a revised Design and Construction submission that provides a fixed price.’’ Mr Bragg says.

“The Board has thoroughly reviewed the new submission and obtained independent legal advice on it. It is now in a position to make a recommendation to the Council that it enter into a Design and Construct contract with BESIX Watpac.

“Based on the fixed price contract we have negotiated, we are confident the multi-use arena can be delivered for a total project cost of $683 million. That figure includes sufficient contingency to cover any issues that might emerge during the build.

“While the overheated construction market means the total project cost is significantly higher than budgeted, the fixed price for design and construction means that if the Council decides on Thursday it wants to proceed, ratepayers will be protected from any further cost increases,’’ Mr Bragg says.

The Council will need to add $150 million to the budget for the arena if it decides to sign the Design and Construction contract. Consultation with the public shows 77 per cent of the 29,987* submitters support the Council doing that.

A report for Thursday’s Council meeting on the financial implications of increasing the budget says that assuming the Council borrows the additional $150 million, rates will need to increase by a net 1.24 per cent to service the debt.

For the average residential property, that means they will have to pay an extra $39 a year.

Overall, building the arena will cost the average residential property $144 a year between 2025 and 2027. After then, the amount they will need to pay will decrease slowly over 30 years as the debt is repaid.

The report says if the Council decides to stop the project, there will be $40 million in sunk costs that it will be unable to recover. The Council may also be liable for some further costs because of agreements it already has in place.

The report also looks at the implications of pausing and re-evaluating the project. It says with prices likely to continue to rise, delaying the project will not bring the cost down. The cost can only be reduced through making significant changes to the arena’s scope and size.

*The Council received about 30,500 submissions but some have since been removed from the count because they were invalid or duplicates.  The revised number of submissions is 29,987. Seventy-seven per cent of those submissions supported the Council increasing the budget, 8 per cent wanted the project paused and re-evaluated, 15 per cent wanted the project stopped.